Markets ended last week with a strong performance, despite the mid-week holiday, which typically reduces trading. All three indexes finished the week higher, and then tacked on more gains to start this week.
The big picture is definitely improving, but our resident market timing expert, Mike Cintolo, says it’s not time to jump in with both feet… yet. A longer correction is still possible, for example, if selling pressure picks up again and the major indexes dip below support. However, the positive action of the last few days raises the odds that the market’s next big move will be up. If the broad market continues to climb, some leading stocks run to new highs, and breadth improves (more stocks participating in the rally and hitting new highs) we will confidently become more bullish.
For now, I have no portfolio changes. If you’re looking to a do a little buying, we have plenty of options in every tier of the portfolio. Some of the financials (AB and AXP) and our energy stocks (OKE and OXY) are looking particularly constructive right now, as are Broadridge (BR), McGrath RentCorp (MGRC) and UnitedHealth Group (UNH).
HIGH YIELD TIER
BUY – AllianceBernstein (AB 30 – yield 8.7%) – AB hit a new 52-week closing high yesterday, buoyed by a strong rebound in financial stocks. Several big banks will report earnings Friday, including JPMorgan, Wells Fargo and Citigroup, and markets are anticipating strong results from the sector. AllianceBernstein hasn’t announced their report date yet, but analysts are expecting strong revenue and EPS growth of 6% and 22% for the quarter. AB is a New York-based asset manager that pays variable but high quarterly distributions based on cash flow (note that they don’t qualify for the lower dividend tax rate, and that you’ll get a K-1 at tax time.) Risk-tolerant investors can Buy here for high yield and long-term capital appreciation.
Next ex-div date: August 2, 2018 est.
BUY – Community Health Trust (CHCT 30 – yield 5.4%) – After hitting a new closing high at the end of June, CHST has pulled back slightly, and could consolidate here for a bit while more aggressive stocks take the lead for a change. But the stock is in a steady uptrend and is buyable right here for risk-tolerant investors looking to add yield to their portfolio. The company is a REIT, or real estate investment trust, that owns medical offices and other healthcare real estate in non-urban areas (distributions are non-qualified). Interest rates continue to trend down gently, and rate hike expectations are relaxed, providing a supportive environment for rate-sensitive REITs.
Next ex-dividend date: August 16, 2018 est.
HOLD – General Motors (GM 40 – yield 3.8%) – Jumpy, news-sensitive GM found support around 39.50 last week, even as China’s higher tariffs on imported cars and auto parts went into effect. Of course, in the stock market the rule is “buy the rumor, sell the news,” so the non-reaction to the tariffs going into effect was unsurprising. The stock has now closed the gap created by SoftBank’s investment five weeks ago, and could put in a bottom here and begin a new uptrend, albeit still within its sideways trading range. GM will report second-quarter earnings before the market opens July 25.
Next ex-div date: September 6, 2018 est.
BUY – ONEOK (OKE 71 – yield 4.5%) – OKE closed at a new 52-week high Monday, supported by strength in energy stocks and the broad market. ONEOK owns natural gas and NGL pipelines, storage facilities and processing infrastructure in the central U.S. Although ONEOK owns pipelines, it’s not a master limited partnership (or MLP). The company is organized as a corporation and dividends qualify for the lower dividend tax rate. High yield investors can Buy here. The company will report second-quarter earnings after the close July 31, and hold the earnings call the next day.
Next ex-div date: August 3, 2018 est.
BUY – STAG Industrial (STAG 27 – yield 5.2%) – STAG hit another new year-to-date high Friday, before pulling back to start this week. The industrial REIT is in steady uptrend and enjoying a supportive environment for REITs and other high-yield investments, although it may take a breather here if more growth-oriented names begin leading the market higher. The company will report second-quarter 2018 results on July 31, after the close. High-yield investors looking for monthly dividends can buy some here, or try to wait for a pullback to the 50-day, currently at 26.
Next ex-div date: July 30, 2018 est.
DIVIDEND GROWTH TIER
BUY – American Express (AXP 100 – yield 1.4%) – American Express will report earnings next Wednesday, July 18, after the close. Analysts are expecting the credit card company to report EPS of 1.82, up 23.8% (from 1.47 per share in the same quarter last year). Revenue is expected to hit $10.06 billion, up 21.1% from $8.31 billion in the same quarter last year. AXP still looks healthy if a bit lacking in momentum, trending up slowly above its 200-day moving average. This weeks’ strength in financials has pulled AXP back above its 50-day line for the first time since June 14. A big earnings beat (plus a supportive market) could be the catalyst AXP needs to finally break out past resistance at 102.50, but we’ll see. Regardless, I’ll keep AXP on Buy for steady dividends and growth.
Next ex-div date: October 4, 2018 est.
HOLD – BB&T Corp (BBT 52 – yield 2.9%) – BBT rode the financial stock rally to 4% gains this week, which has pulled the stock back above its 200-day moving average. BB&T will report second-quarter results next Thursday, July 19, before the open. Analysts are currently expecting to see 31.2% earnings growth, from 0.77 per share to 1.01 per share (with a big boost from the tax bill). Revenues are expected to rise a more modest 0.8%, from $2.90 billion to $2.92 billion. The last few days have seen BBT pop back above its 200-day moving average, although its trend is still sideways-to-down.
Next ex-div date: August 8, 2018 est.
BUY – Broadridge Financial Solutions (BR 117 – yield 1.2%) – BR continues to behave well, trending up gradually just above its 50-day line. Broadridge is an investor communications firm, and trades more in line with the tech sector than with financials, despite its name. Most importantly, the stock has low volatility, and is a steady grower that has increased its dividend every year for 10 years. Investors looking for steady capital gains and dividend growth can Buy BR right here.
Next ex-div date: September 14, 2018 est.
HOLD – CME Group (CME 164 – yield 1.7%) – CME will report second-quarter earnings before the open July 26. Analysts are currently predicting that EPS will hit 1.73, up from 1.23 last year (40.7% growth), thanks in part to changes in the tax code. Revenues are expected to rise 14.2%, from $925 million to $1.06 billion. The stock is caught in a choppy sideways range, and closed below its 50-day line for four days in a row before popping back above it yesterday. However, it’s still not far off its all-time high hit in early June. Hold.
Next ex-div date: September 7, 2018 est.
HOLD – Intel (INTC 52 – yield 2.3%) – Intel has recovered most of its post-resignation-panic losses this week, despite the continuing drumbeat of pessimistic news about the company. While it could just be a “dead cat” bounce, the long-term trend is still intact, so I’ll continue to hold half our shares. Intel will report earnings July 26, after the close, and estimates have been moving up. Analysts are now expecting 32% EPS growth and 13% revenue growth this quarter.
Next ex-div date: August 3, 2018 est.
BUY – Occidental Petroleum (OXY 86 – yield 3.6%) – OXY still looks good, trending up gradually just above its 50-day. Occidental is one of the largest “independent” oil and gas companies, with production operations in Texas, New Mexico, Oman, Qatar, the UAE and Colombia. The company also has a chemical subsidiary that makes PVC and other petrochemicals, and a hydrocarbon marketing and transporting arm. OXY has paid dividends consistently since 1982, and has increased its dividend by an average of 13% per year every year since 2003. In early May OXY reported first quarter revenues and EPS that beat estimates by solid margins and announced the restart of their buyback program, helping the stock to break out past multi-year resistance at 78. The advance brought OXY to its highest level since 2015, where it has spent the last two months consolidating, waiting for its 50-day line to catch up. OXY is now trading just above its 50-day moving average, presenting a good buying opportunity for investors who want to participate in the stock’s next advance. Analysts have been raising their revenue and earnings estimates for OXY aggressively since the first quarter earnings report, which should fuel additional gains in the second half of the year. Dividend Growth investors can Buy OXY here.
Next ex-div date: September 7, 2018 est.
SAFE INCOME TIER
BUY – Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.4%)
BUY – Invesco BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.8%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
BUY – Invesco BulletShares 2022 High Yield Bond ETF (BSJM 25 – yield 5.3%)
I recently replaced our 2018 BulletShares fund with the BulletShares 2022 High Yield Bond ETF (BSJM), maturing in 2022. Our bond ladder is now set to generate a steady, gradually rising stream of income for at least four more years. Note that although I’m using BSJM, Invesco’s high-yield bond ETF maturing in 2022, you could also use BSCM, the investment-grade version (which has a lower yield but is safer and less volatile.) If you’re not familiar with how a bond ladder works, you can read an explanation at cabotwealth.com/tag/bond-ladder/.
Next ex-div dates: est. August 1, 2018 est.
HOLD – Consolidated Edison (ED 78 – yield 3.7%) – Utilities dropped Monday, as the broad market bounded higher and some investors rushed for more aggressive investments. That’s fine; ED was due for a pullback after a four-week streak of gains, powered by calm interest-rate expectations and stock market anxiety. The move has brought the stock just back to its 50-day line, where it bounced yesterday. ED will probably chop around some more short-term, but remains a solid long-term Hold for safe income.
Next ex-div date: August 13, 2018 est.
HOLD – Ecolab (ECL 143 – yield 1.1%) – ECL has developed some unusual volatility since the start of the year, but the Dividend Aristocrat is still a solid holding for long-term income investors. A long-term chart of the stock shows a clear, steady uptrend, notwithstanding the gyrations of the last two quarters. The company makes chemicals and cleaning products widely used in the industrial, healthcare and hospitality industries, among others. Its high percentage of recurring revenues mean cash flows are very predictable and the company has increased its dividend every year since 1987. If the market’s primary trend turns more bullish I’ll put ECL back on buy for long-term investors. Ecolab will report second-quarter earnings July 31, before the open.
Next ex-div date: September 14, 2018 est.
BUY – Invesco Preferred ETF (PGX 15 – yield 5.7%) – PGX is an ETF that holds preferred shares and pays monthly distributions. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16, depending on the direction of interest rates. Buy under 15 for a good store of value and regular income.
Next ex-div date: July 13, 2018 est.
BUY – McGrath RentCorp (MGRC 64 – yield 2.1%) – McGrath will report second-quarter earnings July 31, after the market closes. Analysts are currently expecting a big EPS bump of 33%, thanks in part to MGRC’s new lower tax rate, and slower but steady 3% growth in revenues. McGrath has beaten earnings estimates by more than 20% in each of the last four quarters, and gapped up following its last earnings report. Safe income and dividend growth investors can buy right here. MGRC is trading just above its 50-day line following a short pullback, but hit a new 52-week high just three weeks ago. McGrath, which rents modular buildings, storage containers and other equipment, and has a 25-year history of dividend growth.
Next ex-dividend date: July 16, 2018
BUY – UnitedHealth Group (UNH 256 – yield 1.4%) – UnitedHealth will report second-quarter results this Tuesday, July 17, before the open. Analysts are expecting the health insurer to report sales of $56.09 billion, up 12.1% from $50.05 billion last year. EPS are expected to rise 23.2%, to 3.03 per share from 2.46 in the same quarter last year. The stock is behaving very well and can be bought here. After a three-week pullback that brought UNH just to its 50-day line, the stock bounced off the moving average and has quickly moved back to its previous highs.
Next ex-div date: September 6, 2018 est.
HOLD – Xcel Energy (XEL 46 – yield 3.2%) – XEL got slammed by Monday’s selloff in utility stocks, a side effect of investors excited by the market’s big advance moving out of conservative safe-haven stocks and into more aggressive investments. XEL made up some of the losses yesterday and remains above its 50-day line. While the pullback was unusually quick, it looks normal in the context of XEL’s recent rapid advance. The utility will report second-quarter earnings July 26, before the open.
Next ex-div date: September 11, 2018 est.
Closing prices as of July 10, 2018
